Greetings, welcome to Clean Harbors Second Quarter 2020 Conference Call. At this time, all participants will be in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. At this time, I’ll turn the conference over to Michael McDonald, General Counsel for Clean Harbors. Thank you, Mr. McDonald. You may now begin.

Thank you, Rob, and good morning, everyone. With me on today's call are Chairman, President and Chief Executive Officer, Alan S. McKim; EVP and Chief Financial Officer, Mike Battles; and SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our website and we invite you to follow along. Matters we are discussing today that are not historical facts considered forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, August 5, 2020. Information on potential factors and risks that could affect our actual results of operations is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revision to the statements made in today's call other than through filings made concerning this reporting period. In addition, today's discussion will include references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are available in today's news release, on our website and in the appendix of today's presentation. And now I'd like to turn the call over to our CEO, Alan McKim. Alan?

Thanks, Michael. Good morning, everyone, and thank you for joining us. Before discussing our results, let me take this opportunity to publicly thank our entire Clean Harbors' team. Particularly those on the front lines for their outstanding work throughout the pandemic. Our Q2 performance underscores the versatility of our business model and our leadership role in emergency response. Responding to crisis is an integral part of the job here at Clean Harbors. It's in our DNA and that ability enabled us to jump into action late in Q1 and into Q2 with a wide-ranging response plan. It began with setting strict safety protocols and gathering the proper equipment to protect our workforce. We've been successfully staying safe. The infection rate among our workforce remains well below the per capita rates of the U.S. and Canada. Now let's turn to our high-level overview for our Q2 results here on Slide 3. In response to the recessionary environment caused by COVID-19, we implemented a comprehensive series of actions that included implementing a hiring, wage and travel freeze, temporarily closing nearly half our re-refining capacity. Transitioning the majority of our non-field based employees to work from home; lowering our capital spending; reducing our overall cost structure to align with revenues; launching our COVID-19 emergency response service offering. On the strength of these actions and improving market conditions since we spoke with you in late April, we delivered a better-than-expected performance in Q2. Revenues came in at $710 million, down 18% from prior year, with the bulk of that decline in our Safety-Kleen segment. Our adjusted EBITDA was $135.5 million for the quarter which included a total of $23.4 million from the CARES Act here in the U.S. and the Canadian emergency wage subsidy or cues. These programs enabled us to employ more workers…

Thank you, Alan, and good morning, everyone. Let me mirror Alan's comments about how effectively our organization responded to the pandemic. The work of our outstanding team is reflected in the results we are sharing with you today. In these unprecedented times, the Clean Harbors team stood up to the challenges presented by this crisis. Personally, I couldn't be more proud of our organization. Turning to Slide 9 and our income statement. We delivered strong second quarter results in light of the pandemic. Revenue declined 18%, and we aggressively managed the cost structure of the business in response to the slowdown. Those efforts combined with the systems we received from the two government programs resulted in 220 basis point improvement in gross margin. As Alan highlighted, our EBITDA declined less than $15 million from a year ago, despite revenues being $159 million lower. Our adjusted EBITDA margin for the quarter was 19.1%, which speaks to how effectively we reduced costs, managed over time, closed re-refineries and locations and furloughed workers as needed. Our SG&A performance also demonstrates our comprehensive cost reduction efforts. Despite the fact that employee benefits, including 401(k), are up significantly from a year ago, we lowered our SG&A expense by $20.1 million. Of that total, $9.1 million was related to the impact of CARES and CUES. We flexed down our cost structure rapidly in the quarter, drastically cutting spending – drastically cutting our spend in multiple areas such as travel and marketing. We also benefited from meaningfully lower health care costs in the quarter, which help to offset some severance and bad debt expense. As expected, depreciation and amortization in Q2 was down slightly to $72.5 million, with only one small bolt-on acquisition in the trailing 12 months. We should continue to see this trend going forward.…

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question is coming from the line of Tyler Brown with Raymond James. Please proceed with your questions.

Hey, good morning, guys.

Hi, Tyler.

Hey, Mike, so I just want to make sure that I have it. But the $23 million in EBITDA from the assistance, was that basically a PPP payment with roughly half of it in ES and half in SK? Or is that not right?

Yes. So Tyler, it is. So first of all, before we get into it, in my prepared remarks, I said we talked about free cash flow for the year. We're going to defer some payroll tax payments. And I should have said $36 million, I think I said $360 million. So that's wrong. So $36 million is the right number, just FYI. So people don't get crazy. So Tyler, back to your question. So the money we received is broken into two parts. A portion of it is from the Canadian government. As Alan mentioned, the Canadian Emergency Wage Subsidy, and that's about $10 million of that. And the other $13 million or so is from the CARES Act. That's not PPP loan. That is part – that is a retention credit, and that money is not refundable. It's a grant, not a loan. And that is broken out between $13 million in ES, $8 million in SK and about $2 million in corporate.

Okay, yes, that’s very helpful.

Look at the reimbursement of wages, Tyler, it's all – all in the P&L where it belongs, whether it be COGS or SG&A or what have you.

Okay, yes, that’s very helpful. But to be clear, there's not an expectation of additional assistance in the back half guide.

There's nothing there today. I do think both the CUES second version that they're working through the Canadian government and the CARES Act, both the House and the Senate Bill, have additional monies available for the retention credit. How much we get and how much we qualify for is an open question. And there isn't really much of anything in the back half of the year in the number we gave this morning.

Okay. Awesome. That's helpful. And so Alan, this may be a hard question because I know that there's a lot going on in SK. But based on where base oil is and CFO is today, and if you isolated just the re-refineries that are operating, let's call it, normally, do you feel that you're achieving an adequate spread or even a pre-COVID spread on those gallons? I mean it's a gut feel, but it feels that the team is managing the spread very well, but it's really hard to see with all the noise.

Yes. I think we're really managing the spread very well. But unfortunately, we are carrying and have been carrying a lot of surplus capacity because when all the state shutdown and when all the driving really was significantly reduced, the volume of waste oil, obviously, available to us was significantly impacted. And then also the demand for our oil was also significantly impacted. And so on both sides of the coin, we have to address that. And so by temporarily shutting our plants, we always keep people there. We always have to keep the plants ready and in compliance. So we carry a lot more cost that otherwise would be absorbed if they were running. So I think the team has done a really good job of managing the spread.

Okay. And just – would we expect that gallons collected would just be slightly under last – back half of 2019, is that a good expectation?

I think we're seeing – we're bringing drivers back. We did have to furlough some drivers. And we are bringing them back. We are hiring more drivers today. So our expectation is by the end of the year that our volumes would back to where they were based on what we're seeing right now.

Okay, that’s great. And then my last one, Mike. So I think you guys are about as, cash heavy, maybe we've ever seen you. Your leverage is at 2x. You have a 4% coupon. I think you're projecting additional cash flow in the back half. I totally appreciate the four pillars of the capital allocation. But when should we really think about you putting some capital to work maybe on buybacks or acquisitions?

I think – this is Alan. I mean we would very much like to continue with our acquisitions. We've had some discussions out there. We've been looking at some opportunities that have been presenting themselves. Again, we're somewhat believe that we didn't do a couple of deals that we had looked real hard at prior to COVID because I think integrating acquisitions during that – those last four or five months would have been extremely difficult with – at least in our case, over 3,000 people working from home. So I think as we get out of this pandemic and we get people back, I think we're going to be in a better position to acquire and integrate businesses like we have in the past.

All right, great. I appreciate it.

Okay.

Thanks Tyler.

The next question is from the line of David Manthey with Baird. Please proceed with your questions.

Yes, thank you. Good morning, guys.

Hi, Dave.

Good morning, Dave.

So first off, a three-part question on ES. First, do you have a read on what we might see in terms of incinerator capacity utilization in the third quarter related to that? Second is, did you pull forward any scheduled downtime? And then third, you mentioned, ES profitability is supposed to be lower quarter-over-quarter here sequentially. Is that due to the reduction in the government-assisted programs? Or is that – if we exclude the benefits here in the second quarter?

I think on the – maybe, Michael, take the downtime. My anticipation is that the normal turnarounds for our incinerators is progressing, and we didn't pull anything forward. And we did bite into our deferred a little bit. But quite frankly, it was above the historical average anyway. So when we came into – at the end of the first quarter, we had a lot of waste, not only on-site, but throughout our TSDF network. So I think we feel good about where we are now on a deferred basis. And I think the plants are running as expected. And I would think utilization will continue to be quite strong. Mike, you want to chime in on?

Yes. Sure, Dave. So first of all, there's no – in the back half number, there's no government money that – if we do get any money, it will be upside to the model, maybe like $1 million under the Canadian Wage Subsidy, but that's about it. So just to set expectations there. Utilization in the second half will be – is normal. I think the mix is not – is really what's going to drive a little bit of profitability with chemical being down a little bit versus Q2. Remember, we're a waste business. We get some – we get this – we get the waste late. And I think we're experiencing a little bit here in July, not a lot. I think it's flattish, if I'd have to say, from Q2 to Q3 in the incineration part of the business. Down days are normal. Nothing – we didn't move anything around.

Okay. Sounds good. And then just a two part on the SK side. Is it right to assume that as the facilities went down those shuttered facilities, you did routine maintenance on and you pulled that forward? And then second, Alan, you mentioned the potential for lube oil supply and demand getting out of balance later this year? I was just wondering if you could clarify that statement.

Sure. I guess on the shuttered and maintenance – or maintenance, we also did quite a bit of capital investments in a number of the plants that were shutted. So our anticipation was is that this was going to be temporary. And we did take advantage of being down to accelerate a couple of key CapEx projects that are going to be complete here relatively soon. I think the – as we see the crude oil runs for the refineries and the amount of products that have been made, obviously, that has recovered quite a bit, although refineries maybe only still running 75%, 80%. With a significant decline in jet fuel, certainly, there is – to some extent, we think pressure on the base oil side of the business as well as with IMO not really kind of materializing, we just see that the market is still somewhat out of balance from our expectations where we were in January and February. And I think that was really the kind of color that we were trying to explain in our remarks.

That’s great. Thanks very much.

Thanks, Dave.

Our next question is coming from the line of Michael Hoffman with Stifel. Please proceed with your questions.

Thank you very much. On SKO, what should we be using for production activity in the second half, just instead of trying to guess the gallons per plant that are being turned on? So 120 at East Chicago; Kansas is what, 15? El Dorado is 10?

I don't have that – Michael, I don't have that number handy. I can't…

Directionally, those are the right numbers. I would say, Michael, for those three locations.

Okay. And then average branch revenue per week, how would you describe the trend relative to pre-COVID? Where are we percent recovery?

Yes. So Michael, it's all about exit Velocity here in June. And so we were in the low 80% range by branch by week as we exited June. We have that ramping up into the mid-to-high 80s as we get into Q3 and back into the low 90s in Q4 for the SK branch business.

Okay. All right, that’s terrific.

Does that make sense?

Yes. I think that makes sense. And then just want to make sure I heard – I was scribbling number so fast, I want to make sure I got them right. So the guidance says ES is flat to up year-over-year. SK is down 20%, and then corporate overhead is basically flat, and that gets you to about the midpoint at $485 million.

Correct.

Okay. In the SK, I'm assuming your inference was down 20% – that the SKE is down more than 20%, SKO is less than 20%. How – what's the gap there? Is it one is 25% and one is 15%? And how do I think about that?

No. The losses are probably more in the SKO side than the SKE side.

Okay. And then in your midpoint of guidance, what should I account for the benefit from decontamination? And then I'm assuming there's $23.4 million in the $485 million in both free cash flow and the $215 million – the $215 million free cash flow and the $485 million for EBITDA, but what's the decon piece of both of those?

So we don't give that number out for competitive reasons. It's above the corporate average, though.

Above the corporate average, okay. All right. That’s all I needed. Thank you so much.

Our next question is from the line of Jeff Silber with BMO Capital Markets. Please proceed with your questions.

Thanks so much. Just wanted to go back to the pandemic relief funding. I just want to make sure I understand it. This is not in revenues. This is just an offset either to cost of services or SG&A. Is that correct?

Correct.

Okay. Good. Just wanted to double check on that. Alan, you mentioned IMO 2020 briefly. Can we get an update on what's going on there and what you think is going to happen over the rest of the year?

I just think there's been such a huge disruption. As you know, the whole shift from the 3% sulfur to 0.5% certainly has taken place. So I don't think that we have heard of any relief at all given – but I think just the sheer volume of decline in demand for 0.5% oil and subsequently, how that impacted the VGO market, the vacuum gas oil market, all of that has just been turned upside down. So when we looked at where we were coming into early January to where we are today, I mean, it's just a total different ballgame from everything we can see.

Yes. Jeff, one thing to add. So just to be clear, IMO is still a regulation. It still applies. It's just – ships aren't moving, right? Cruise ships, tankers, it hasn't really gotten unstuck. And so Alan is – so obviously, IMO is – we had visions at this time having IMO being a big catalyst for this business in 2020, and it hasn't happened yet. That doesn't mean it's not going to happen. It just hasn't happened yet because of the pandemic, frankly.

Yes.

Yes. Completely understandable. And one final one. We get this question a lot, so I'll just ask you. We've got a big election coming up over the next few months. Anything on the horizon besides tax reform that you think might impact your business if we have a change in administration?

I don't think so at this point. I mean we've seen historically that no matter what administration is in environmental rules and regulations are being enforced and new ones are being promulgated. So I don't – we don't typically see one administration to another really impacting our business in the short-term.

I mean we can debate as to what's going to happen with corporate tax reform in a different administration. But a lot of the state – a lot of regulations around what we have to comply with at the state level. And they're just as diligent as they've always has been, with enforcing state regulations on us and on our customers.

Okay. Great. Really helpful. Thanks so much.

Our next question is from the line of Hamzah Mazari with Jefferies. Please proceed with your questions.

Good morning, thank you. I was hoping maybe you could just give us an update on just what you're seeing in the captive incinerator market? Are you seeing more of those shutdown? Are you seeing people acquire them? How does that capacity evolve over time? And anything with COVID that disrupts that? Just any update there would be helpful.

We've seen a lot of – what I would say, a lot of noise in that area, as you can imagine, because as customers – excuse me, as our customers were impacted by COVID, obviously, that impacted their plants. And in some cases, we saw captive shutdown, and we've got a lot of volume because of that. We're not sure where all this is going to shake out because there's just so much uncertainty there. But I'm sorry, I would say that it's been a positive for us. We did see one plant that was taken over by our competitor that really struggled to try to handle commercial hazardous waste of that site. We – subsequently, we gained that business that we had lost to them. And I think that's probably true for any captive out there that wants to try to go commercial. Very difficult to have all the necessary pretreatment and processing capability to kind of handle the kind of waste that the commercial hazardous waste business generate. So I would say that we're still looking at the captive closures as a positive for us.

Got it. And just my follow-up question would be just around the average price per pound in the incinerators. We were running at double digits, and we're at 6% today, which is still very healthy. And I realize it's a function of mix. But could you just comment on do you see mix benefits as decelerating given where we were? Or just how to think about the average price per pound of the incinerator going forward? Is 6% the right number going forward relative to the long history you've had? Or is this going to go back to sort of the double digits that we saw pre-COVID?

We continue to look at mix as the most important thing right now for us that sits in our control. But I would tell you that we've taken our foot off the gas on price increases right now, realizing where our customers are. We saw – on the industrial side of our business, for example, we saw big requests for discounting and lowering of our price for the next six months or nine months. So we – what we've been trying to do is work with our customers out there. We've held off on any new price increases realizing where everybody is in dealing with this pandemic, and we'll – probably we look at that in January. But I think the price number that you'll see is going to be really reflective of the mix right now.

Got it. Thank you so much.

Okay, Hamzah.

The next question is from the line of Brian Maguire with Goldman Sachs. Please proceed with your questions.

Hey, good morning. Just a couple. One, I think is a little bit back to Michael's question. But just the – with the two re-refineries restarting, any sense where production volumes could be in 3Q versus the 2Q level? Or sales volumes, if you could get that granular with it?

I think the combined number is about 35 million gallons from those two on an annualized basis. And they are both running – typically, our plants will run full-bore when we start them back up again. So by the end of July, we made the decision to turn those two plants on. So that would be the annualized number.

Maybe I'll try to answer your question in a little different way, Brian, and that will be at kind of 75% without Breslau. And as you think about the profitability of that business, we took the kind of the exit velocity in June and kind of was very modest, as I would think about July, August and September. So it really is – it's a modest recovery from where they landed in Q2 and with the ramp-up going into Q3 and Q4 and into 2021.

Okay. Great. And then on the SG&A, down $20 million or so year-over-year. Just wondering how much of that you think is sustainable, either through the back half of the year or probably more importantly, just once we get sort of through the crisis, expecting probably a lot of the health care stuff will come back, all the delayed surgeries and people getting back to work, we'll probably see reflation in that travel expense maybe it doesn't come all the way back, but comes back some, obviously, some of the government assistant stuff goes away. But kind of the $20 million, how much of that do you think is truly out of the business versus stuff that will eventually come back in?

Yes, Brian, it's actually a really good question that we've done a lot of work to think about, both on the cost of goods sold and on SG&A, both have some real cost savings in there. Some of that's government funding and it goes away. But I think of it kind of as three different buckets. The first bucket is things that happen to every company in the world with health care costs of your self-insured going down and travel costs going down and other things that kind of affected everybody. And so obviously, we're the beneficiary of that. And my assumption is that in a post-pandemic world over some time horizon, those costs come back relatively quickly, six months, three months, a year, depending on how you look at it. The other costs are things that kind of – because of the crisis, because without leadership, it was lower for longer, we took some aggressive actions around taking costs out of the business, both on the SG&A side and on the OP side, we're looking at over time, looking at employee utilization, looking at leases, looking at facilities, shuttering facilities, shutting locations, being very aggressive about that. And I think – and my view on that is that we actually put some good tools in place to manage that more effectively. And those types of tools and that type of muscle doesn't go away and the moment we all get a shot in our arm. So I really do believe that over the longer horizon, both on the SG&A and on the cost side, there's margin expansion that we'll experience out of here, because the cost we took out and the actions we took, didn't affect sales. I mean, the sales force is there, and we're hopeful that when that recovers, we'll have an opportunity there to really leverage our cost structure and be more – be smarter about it and take some of the lessons we learned in this pandemic and apply it over the longer horizon. So what that exact number is of the $20 million stays and go, it's going to be hard to put a finger on, because there's a lot of offsets to that with bad debt and other things. But I think that over the long haul, there really is a lesson here that we've learned, and I think there's some real savings we'll get over the long horizon.

Yes. Just last one for me. We appreciate everything you're doing on the decontamination side to help people get back to work. Just looking at that mark, and obviously, it's kind of great to have it while you have it. But a lot of reasons you hope that it doesn't continue forever. But are you seeing just the competitiveness in that business? I mean, it seems like, one, where a lot of people are probably looking to get into that market because of the opportunity today, sort of the $50 million or so that you had in the quarter. It seems like you're expecting some deceleration. Just wondering how much of that is just because you think that the actual market is going to be shrinking from 2Q levels versus just increased competition or new entrants as the year progresses?

I guess I would say that there's always been competition in regard to some of the decontamination work that we have historically done. And I think people choose clean harbors really for the professional approach that we take and training and the personal protection and really sort of the insurance policy that we provide for them. And there are plenty of firms out there that are janitorial kind of firms that will also provide that kind of decontamination work, but we just think that we're not really competing with them. We don't look at this from a pricing standpoint to be competitive with these other players out there. So any slowdown is not necessarily because we have competition. I just hope we all pray that it's going to continue to slow down as the infection rate slows down.

Yes. Absolutely. Okay, thanks so much, guys. Good luck.

Thank you.

Thank you. The next question is from the line of Noah Kaye with Oppenheimer.

Hey guys. Thanks for taking the question and really nice job managing both the profitability and the safety. I would like to start with just clarifying maybe expectations around the price/mix trajectory in ES. So it sounds like we may see a bit of downward pressure in the back half, partly from mix and then also from pausing these price increases. I guess looking a little bit longer term, with the assumption that you could maybe resume price increases for a portion of your customer base in 2021, and then just assessing production planning for petrochem. Do you think we could potentially see a re-acceleration of price/mix benefits in 2021? Is that a reasonable expectation at this point?

Yes, Noah, that's a good question. And too early to kind of talk about 2021, but I will say that over the past 10 years, in our pricing, we've been able to get 3% to 7%, and I don't see anything that's going to change that in a post-pandemic world. So tough to really speak to 2021, but I would say that the pause that Alan spoke of, it does affect Q2 and Q3, and I think that it's going to be the smart thing to do, the smart businesses to do. But over the long horizon, I don't see that – I don't see any type of shift there. As a matter of fact, what I do see is that and there's an opportunity for Clean Harbors when you talk about putting supply chains closer to our – to the end customers. And it's something that the world has learned is that, that might not be a terrible idea. So I think that might be a long-term catalyst for us over the next five years.

Yes. That makes sense. And then just where does the PFAS remediation opportunity fit at this point? Obviously, there's been some noise around both the cleanup and incineration as a treatment option. How are you thinking about the opportunity?

Yes, Noah, I'll take a shot now. And Alan, I'm sure has a view on this is that PFAS remains as a very important opportunity for us. Nothing has changed in a post-pandemic world. And that I think that we really can get as perhaps a new administration, maybe that changes, I don't know. But we still know has a real opportunity that's out there, and we think it's very compelling. We took a lot of inbound traffic on it. There's still a lot of learning on it. And I think it's going to be a long-term catalyst for the industry.

Great. Okay, thanks guys. Nice job, stay safe.

Thanks, Noah.

[Operator Instructions] The next question is from the line of Jim Ricchiuti with Needham & Company. Please proceed with your questions.

Hi guys, this is Mike Cikos on for Jim Ricchiuti. Thanks for all the detail and the color today.

Hi, Mike.

I was curious if you could give me some more detail, coming back to this decon work, the $100 million or so we're expecting in 2020. So coming back to the slide, looks like you generated $60 million year-to-date, $50 million in Q2. So that additional $10 million, is that what's come in Q3 so far? Or was that a partial benefit to Q1? And then how, I guess, if we're looking out to the rest of 2020, should we expect this to kind of tail off in Q3 and then an additional tail off in Q4?

Yes, Mike. So the original – so $60 million, think of it this way, for the first half of the year, $10 million of it was actually in Q1 toward the end of March and $50 million was in Q2. So we're at $60 million kind of year-to-date through the end of Q2. We said $100 million, so that implies a $40 million in the back half of the year, more in Q3 and less in Q4. Did that give you what you need?

Yes, exactly. And then coming back to the assistance funding that you guys received. I'm just curious, could you help us better separate what was included in cost of goods sold versus OpEx? Is it as simple as taking the $2 million in assistance that's attributed to corporate and assigning that to OpEx with the remaining, call it $21 million or so up in COGS?

We'll give you all – here's all the details we have it. And it's our financial statement. Our Q is going to be filed in minutes, so it'll be all laid out there as well. So $23.4 million in Q2, $14 million of it in COGS and about $9 million of it in SG&A. And as broken out by segment, $13 million in Environmental Services, $8 million in SK and $2 million in Corporate.

Okay. Thank you for that. And then just one other question, if I could squeeze one more in. Just looking at the EBITDA guidance range that you gave us for the year, this $470 million to $500 million, can you help us parse out some of the puts and takes, if I'm trying to think about, what gets you to the $470 million versus what would need to go right or go your way to get you up to that $500 million bogey?

Sure. So in my opinion, it really is the speed and trajectory of the growth of certain parts of our business. When you think about the Environmental Services business. If that business slows down, in theory, the decon work will be an offset to that as crazy as that sounds. And so I'm not really as concerned about the Environmental Services business. On the Safety-Kleen business, it depends on the trajectory of kind of miles driven and demand in oil and that is the variable that's going to drive us to the low end of that range and versus the high end of that range. If that picks up and continues on its current trajectory and does even better, and that will really drive that. And corporate expenses, we managed pretty tightly, as you know. And so that's going to be what it is. It really comes down to the – in my opinion, the SK business will kind of result in either the high end or the low end of our guidance.

That’s very helpful. Best of luck, guys. Thank you.

Thank you.

Thanks, Mike.

Our next question is from the line of Matthew Fields, Bank of America. Please proceed with your questions.

Hey guys. Just want to ask a balance sheet question or two. I appreciate you paid down half the revolver balance in the quarter, but you have a pretty robust cash balance you have now and then the robust kind of free cash flow outlook for the back half of the year. Why not pay down the full balance? Or is that something you're planning to do kind of if the rest of the year works out in your kind of plan?

Matthew, that's a genius idea. We actually paid it down before the – before – in early July. And so we mentioned that in the script. You must have not gotten that far.

Sorry, I dialed in late. There's a queue running this morning.

It’s okay. Yes, I know.

And then sort of against the same backdrop. I know you don't have any real scheduled maturities. But what do you think about kind of your overall debt load as a function of kind of leverage, balancing leverage with kind of maybe ramping share buyback up later in the year, given your kind of healthy free cash flow. Where does that balance strike you at kind of this point in the recovery?

I think our real focus right now is to try to grow the business and grow through organic growth as well as acquisitions. And I think we're well positioned to do that with still a substantial amount of our workforce working from home. When we start thinking about doing an acquisition and integrating those and how we typically would go about an acquisition, that would make it a lot more difficult for us to do today than we hope we'll be in the next, let's say, six months or so. So I'd like to think that we could really take advantage of the strong balance sheet we have and the low debt leverage we have, and do an acquisition that would be a sizable transaction for us. That's what I'd like us to do.

Okay. Fair enough. Good luck, thanks and I apologies, I missed the prepared remarks.

No problem.

Thank you.

Thank you. At this time, we've reached the end of our question-and-answer session. And I will now turn the call back over to Mr. Alan McKim for closing remarks.

Okay, Rob, thank you. Thanks for joining us today. I hope that all of you and your families are staying safe during this pandemic. Over the remainder of this month, we are participating in virtual investor conferences with Needham, Stifel and Raymond James. We look forward to connecting with many of you then. Have a great day.

Thank you, everyone. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.